Smart Money Choices

Dec 28, 2011 by

As we head into 2012, I plan to focus several posts on Budgeting. This is No. 1 in a multi-post Budget series.

I don’t think you can make smart money and lifestyle choices unless you have a family budget. And what’s really important is documenting all the assumptions you make to forecast your family’s income & expenses. Here is an example of how you can use your budget to help make smart money choices.

Gasoline Expense

If you own a vehicle, gasoline cost will be part of your family’s expenses.  To budget gasoline expense, estimate, for each vehicle you own:

  • Miles driven per month—let’s say 800 miles/month
  • Vehicle’s fuel efficiency—let’s say 25 mpg for this example
  • Gasoline’s cost per gallon—let’s go with $4.00/gallon

For this vehicle, the monthly cost of gasoline would be

(800 miles ÷ 25 mpg) x $4/gallon = $128

(Using a spreadsheet for your budget makes these calculations easy.)

One month your actual gasoline expense is $185. WHY? Use your budget assumptions to understand why you spent more on gasoline than you budgeted.

Has gas gone up to $4.50/gallon? Did you drive 950 miles instead of 800? Depending on the answers, one or more of these ideas—or others that fit your situation—may be smart money choices:

  • How about biking, walking, using transit, or carpooling more?
  • Would carsharing make sense?
  • Get creative in consolidating trips and staying closer to home.
  • Make sure your tires are properly inflated and your vehicle maintained.
  • Longer term, maybe a higher mileage car, or a scooter, would be a good choice.
  • Or it may simply be that you underestimated your gasoline consumption and need to cut other household costs to balance your budget.

Without the budget assumptions—miles per month, vehicle mpg, and gas cost—you’re in the dark about your family’s gasoline cost. You’ll suspect you’re spending too much on gas, but you won’t know why, which means you’ll be guessing about a solution. And “why” is where it’s at when you’re aiming to be smarter with your money.

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